Should you use Buy Now, Pay Later for 2022 holiday shopping?

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Crushing inflation is going to make the holiday season pretty expensive – like it wasn’t before. Shoppers who aren’t able to pay for all of their purchases right away might consider using a credit card, but there’s another payment option that’s been gaining traction in recent years.

Buy Now, Pay Later (BNPL) services allow you to purchase your items immediately and pay for them over time, often without interest. But it’s not a good choice for everyone. Here’s what you need to know about BNPL.

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How does Buy Now, Pay Later work?

Buy Now, Pay Later services, including Affirm, Afterpay and Klarna, allow you to shop at participating retailers with just a small upfront payment. This is often 25% of the purchase price.

Then you pay off the rest over time in a series of interest-free installments. You can have the money automatically deducted from your bank account or debited from a credit card.

Advantages of buy now, pay later

Buy Now, Pay Later offers the following benefits:

  • No waiting for your items: Unlike layaway, you don’t have to wait until you’ve paid for the items in full before you can take them home.
  • Flexible credit check: Most BNPL services use a soft credit check, which does not hurt your credit score.
  • No interest if you pay on time: Unlike a credit card, BNPL services allow you to repay what you owe over time without interest.
  • Quick approval: You can often sign up for BNPL when checking out online from a store and complete the transaction the same day.

Disadvantages of buying now, paying later

The Buy Now, Pay Later services also have their drawbacks, including:

  • Additional charges for late payment: Those who are unable to track their BNPL payments could accrue additional charges.
  • No Reward Earnings: Unlike using a rewards credit card, BNPL does not allow you to earn rewards that you can use for future purchases.
  • Increased temptation to spend more: Some people might spend more using BNPL than they would if they paid full price for the items. This could lead to debt if you’re not careful.

Alternatives to buy now, pay later

If you think BNPL’s services aren’t the right choice for you this holiday season, try one of these options instead.

Waiting to make a purchase

Start saving for your holiday shopping now and pay for your items in full upfront so you don’t have to borrow money or worry about interest charges. However, this may not be possible if you are hoping to buy a popular item that is likely to sell out quickly.

Set apart

Layaway also lets you pay for an item over time, but unlike BNPL, you can’t take your items home until you’ve paid for them in full. Many department stores and some online retailers offer layaways, but it’s important to review the terms first. Be sure to find out if there are any delays or associated costs before signing up.

Rewards credit card

Using a rewards credit card can help you earn points that you can use for other vacation purchases. You will also have some time between when you make your purchase and when you have to pay for it. But you should never charge your credit card for items that you’re not sure you can pay off in full at the end of the month. Carrying a balance on a credit card is expensive, and the interest you’ll pay far outweighs any benefit you’ll get from the rewards.

How to Get Started with Buy Now, Pay Later

If you want to use a buy now, pay later service, you should first check with the retailer you’re buying from to see if that’s an option. Many companies that offer BNPL now advertise it as a payment option, but for others you may need to add the item to your cart and proceed as you go to checkout to see if the company is working with a BNPL provider.

Next, review the Terms of Service. Pay attention to how much you need to pay up front, your installments, and how often you need to make payments. You should also review the fees the company may charge you if you are unable to keep up with your payments.

Finally, keep track of how much you spend to avoid going overboard. BNPL purchases can seem pretty small when you’re only paying 25% down payment, and if you’re shopping on multiple sites, you can rack up quite a large bill before you know it.

If you are worried about accumulating debt, BNPL may not be the right choice for you. Try one of the other suggestions listed above and start planning your holiday shopping list well in advance so you know what you need and how much you can afford.

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